DMG MORI CO., LTD.

The Group has a regional sales composition of 15.2% in Japan, 20.0% in the Americas, 55.8% in Europe, and 9.0% in China/Asia, and thus faces the risk that demand for products and MRO may decline due to deteriorating economic conditions or changes in tariff policy in any of these regions. In particular, trends in the European market, which accounts for more than half of sales, have a significant impact on business performance. Although the Group is working to diversify its sales regions and diversify the industries of its customers, a global economic downturn could affect all regions simultaneously.

The machine tool industry is highly susceptible to economic fluctuations, and during a global economic downturn, capital investment demand tends to decline worldwide, with both unit prices and unit sales dropping rapidly and significantly. Although the Group is promoting diversification of sales regions and customer industries, if capital investment demand declines simultaneously in multiple regions, this could have a material adverse effect on the Group's business, performance, and financial condition. While the machine tool markets in Japan, the Americas, and Europe are growing steadily over the medium to long term, the risk of short-term demand fluctuations remains high.

The machine tool industry has a large number of participants, including overseas companies that supply products at low cost, and the Group faces intense competition in each market, making favorable pricing decisions difficult. The Group is promoting the development of differentiated products through enhanced technological capabilities, cost reduction in raw materials, and strengthening of sales capabilities; however, if it becomes difficult in the future to maintain or expand market share or sustain profitability, this could adversely affect the Group's business, performance, and financial condition. Trends in industry consolidation and new market entrants could also affect management strategy and financial condition.

The Group's business, performance, and financial condition are affected by fluctuations in foreign exchange rates against the yen, such as the euro and US dollar, which directly impact the yen-converted amounts of foreign-currency-denominated assets and liabilities, as well as the prices and sales revenue of products, parts, and MRO. To mitigate this impact, the Group strives to balance yen-denominated and euro-denominated transactions in Japan, China, and Asia, euro-denominated transactions in Europe, and US-dollar-denominated transactions in the Americas; however, the proportion of foreign-currency-denominated transactions is high, particularly centered on Europe, which accounts for 55.8% of sales, and foreign exchange risk cannot be entirely eliminated.

The Group has development, production, and sales bases deployed around the world, and heightened social, political, or military tensions in a particular region could adversely affect its business through fluctuations in resource prices, import/export restrictions, supply chain disruptions, and effects on financial and economic conditions. While the Group monitors political and economic conditions and regulatory trends in each country and deliberates as appropriate through decision-making bodies such as the Board of Directors and the Executive Officers' Committee, an unexpected expansion of global political division or military tension could make an adequate response difficult.

Machine tools, the Group's core business, are classified as regulated cargo under export-related laws and regulations in each country and are subject to regulation under the international export control framework. If regulations are strengthened due to changes in the international situation, this could adversely affect the Group's business, performance, and financial condition through restrictions on sellable regions and customers, as well as increased procedural costs. Significant changes in laws and regulations in the many countries and regions in which the Group operates could similarly give rise to this risk.

The Group's manufacturing bases are distributed across five domestic locations (Mie Prefecture, Nara Prefecture, Kanagawa Prefecture, Niigata Prefecture, and Shimane Prefecture) and five overseas countries (the United States, China, various locations in Europe, etc.); however, there is a risk that product supply could become impossible or delayed due to plant closures caused by natural disasters such as earthquakes and floods, epidemics, or cyberattacks. As sales and MRO bases are also deployed globally, unpredictable events could simultaneously affect multiple locations, potentially having an adverse effect on the Group's business, performance, and financial condition.

If a sharp rise in raw material prices occurs that significantly exceeds expectations, it could adversely affect the Group's performance. The Group's policy is to respond through cost reduction via price negotiations with suppliers and by passing on costs to product prices; however, if the price surge is prolonged or price negotiations are not successful, profitability could be significantly impaired.

The Group regards M&A and capital/business alliances as an important strategy for strengthening its business foundation, but the outcome of such initiatives could adversely affect the Group's business, performance, and financial condition. In addition, trends such as new entrants into the machine tool industry by other companies or industry consolidation could also affect the Group's management strategy, financial condition, and business results.

The Group strives for thorough quality control on a global basis; however, if a serious product defect exists and results in a major accident, claim, recall, or similar event, substantial product compensation costs could be incurred. There is also a risk of lawsuits seeking damages arising from business operations conducted both domestically and internationally, and an unfavorable ruling against the Group could adversely affect its business, performance, and financial condition. At present, no litigation that would materially impact business performance has been filed.